Pro Forma

Pro Forma: Latin for ‘as a matter of form’. In the restaurant business it can mean a document that captures and measures financial success (or failure).

When I meet with consulting clients, and they are in desperate need of figuring out why they can’t make ends meet, the first thing I ask them for is to take a look at their numbers. When they tell me they don’t have any numbers, I know where the problem is.

Budget

You cannot expect financial success if you don’t have a plan. Map out ahead of time your idea of how things should play out. That is called a budget. A budget is something built for the future. Something that you can strive for.

You can’t control food costs if you don’t know what your goal is. You can’t control your beverage costs if you don’t know what you are shooting for. Don’t even get me started on labor.

It is important

Have some idea of your costs and how they relate to your sales. Remember you only have 100% to work with, so start with that easy-to-manage number.

Food costs

To calculate your food cost percentage simply divide what you spent on food by what you sold that food for. There are many nuances to this that I don’t need to bore you with here, but that is a very easy beginning step. And it is important that you only compare food with food. Don’t include beverages in this mix.

Beverage costs

The same plan for beverage cost percentage. Divide what you spent on beverages by what you sold those beverages for. Again, make sure you are only comparing beverages with beverages. Don’t let food costs or food sales in to this mix.

Labor costs

This one is a bit trickier. With food cost percentage you only compare food cost to food sales. With beverage cost percentage you only compare beverage costs with beverage sales. With labor you compare labor costs with total sales (food and beverage sales combined).

It’s not that easy

For many operators, labor cost percentage can be a challenge. With labor there are other considerations. Do you provide health insurance? That is a labor-related expense. Do you feed you staff (you should)? That is also a labor-related expense. There is also this thing known as employer’s share of taxes.

Those taxes change from state to state, even from city to rural area. The current employer’s tax responsibility in Multnomah County is about 21%. That money goes toward disability, unemployment, Medicare, Medicaid, Social Security, Metro, Tri Met–the list goes on and on.

Let me remind you

You have 100% to work with. You want to have profit. You must start by gaining control of these expenses. Then you can start to look at the more subtle things: Rent, utilities, insurance, janitorial, etc. Yes, this list goes on and on, too.

You want profit?

Start by putting together a plan. Then you can compare operating data to this plan and see how it is going. See what is working and where you are missing the boat. Have a plan. Plan on profit.